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Friday, January 25, 2013

Strategic CSR - Bribery

The article in the url below is interesting because it suggests a negative correlation between bribe paying and a firm’s economic performance:

Companies that bribe their way to contracts under-perform for up to three years before and after winning the work for which the bribe was paid , according to new academic research … conducted by Cambridge University Professor Raghavendra Rau.

What is also interesting is that the research reveals an interesting relationship between the status of the bribe receiver, the amount of money involved, and the utility of the bribe:

When high-level government officials are bribed, the value derived from the bribe is close to zero, Rau said. But, conversely paying smaller bribes to lower-level officials is less likely to ensure that a contract is won, according to Rau.

Relating the bribes to economic performance, Rau found that it is worse performing firms that tend to pay:

‘From the point of view of society it’s terrible because the worst kind of companies are winning the contracts, and that amounts to a distortion of resource allocation in an economy,’ Rau said.

The only issue with the data is that they capture actual recorded incidents of bribery and, as such, do not include firms that bribed, but did not get caught. As such, perhaps a more accurate interpretation of the data is that it is the less competent firms that bribe ineffectively, perform poorly, and get caught. There could be a missing variable in the model (incompetent managers) that is really driving the results!

Further details of the study are available on the University of Cambridge’s website:

Have a good weekend.

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Bribes Provide Companies Few Benefits, Study Finds
By Christopher M. Matthews
November 23, 2012
The Wall Street Journal Blog